I'm a member of the Forbes wealth team, covering the world's richest people. I'm also the author of Forbes' first graphic novel, The Zen of Steve Jobs. Previously, I've written for the Chicago Tribune and The Times of South Africa. My alma mater is Northwestern University's Medill School, which has recently altered its name to include a rambling string of words that I cannot be bothered to remember. Follow @CalebMelby and/or circle me on Google+

John Schnatter wants to raise the cost of your pizza in response to new health care costs. And his math kind of adds up.

Updates can now be found at the bottom of this post.

Papa John Schnatter is no fan of Obamacare. The CEO of Papa John’s International has occasionally railed against the reform for months. Leading up to the election, he was a Mitt Romney supporter and fundraiser. Now that the election is over, he’s doubling down on his claim that the health care reform will force his company to increase pizza prices by 10-14 cents a pie. He estimates that Obamacare will end up costing his company $5-8 million annually.

The issue: the Affordable Care Act dictates that full-time employees (30 hours or more per week) at companies with more than 50 workers need to be provided health insurance. Schnatter has further claimed that some employers will cut employee hours to avoid providing them with healthcare.

Meanwhile, shares in Papa John’s International have been tumbling since last Thursday, falling from $51.70 at market close Wednesday to $49.22 on Monday, a 4.2% drop.

Checking Papa Schnatter’s Math

Last year, Papa John’s International captured $1.218 billion in revenue. Total operating expenses were $1.131 billion. So if Schnatter’s math is accurate (Obamacare will cost his company $5-8 million more annually), then new regulation translates into a .4% to .7% (yes, fractions of a percent) expense increase. It’s difficult to set that ratio against the proposed pie increase, given size and topping differentials, but many of their large specialty pizzas run for $16. Remarkably, a 10-14 cent increase on a $16 pizza falls in a comparable range: .6% to.9%. But the cost transference becomes less equitable if you’re looking at medium pizzas, which run closer to $12, meaning a .8% to 1.15% price increase.

For the sake of argument, let’s say that Papa John’s sells exactly half medium/half large specialty pizzas. Averaging the ranges for both sizes, then averaging that product yields a .86% price increase — well outside the range of what Schnatter says Obamacare will cost him.

So how much would prices go up, under these 50/50 conditions, if they were to fairly reflect the increased cost of doing business onset by Obamacare? Update 12/5/12: an earlier version of this story estimated that a fair per pie cost increase to reflect additional expenses due to Obamacare to be 3.4 to 4.6 cents a pie. That was incorrect. The range is 5.6-9.8 cents per pie. This is still absolutely outside the range of proposed pie increases suggested by Schnatter at the time, and, as discussed in the comments, the range gives Schnatter a large benefit-of-the-doubt margin as the estimate assumes all pizzas are sold at specialty prices. In reality, many pizzas sold are at discount or coupon prices, and many pizzas are not specialty pizzas, but in fact cheaper pizzas with fewer toppings. Thanks to Daniel Kirchheimer for noticing the error.

In September, the company announced that it would be giving away 2 million free pizzas. That was, of course, a promotion designed to increase brand awareness and to invite consumers to try the brand — with the ultimate goal of selling more pizzas. Those giveaways can’t really be cataloged alongside sales that would have been made otherwise. But just in case you’re curious, that would be the equivalent of $24 million to $32 million in pizza revenue.

Necks In This Game

Standing to lose (or gain) as his company determines how best to operate under new regulations is Papa Schnatter himself, who owns 6,094,409 shares, or nearly one fourth, of Papa John’s, according to the company’s most recent annual report. 1,268,052 of those shares are held in a family limited partnership and 84,000 shares held in a 501(c)(3). The rest are directly owned. At the $49.44 share price, subtracting those held in a charitable trust, the remaining 6,010,409 shares are worth roughly $297 million. Schnatter’s compensation packages for years 2009-11 were $2,319,643, $2,614,516, and $2,745,219 respectively, also according to the annual report. Papa John’s International has not paid a dividend since 2005.

Also hanging in the balance are the shares of institutional investors FMR (11.6%), BlackRock (6.7%) and JP Morgan Chase (5%). But if these notions of protest materialize, Papa John’s front line will be populated by the franchise owners who operate many of its 4,000-plus international locations.

Emails sent to Papa John’s Investor Relations and calls placed to Papa John’s Public Relations were not immediately returned for comment.

Updates as of 9:15 p.m. EST.

1. First of all, I’m really enjoying the spirited conversation on this post.

2. With regard to the pizza giveaways. These are not “lost revenue.” They are a marketing tactic designed by the company to bring more consumers to Papa John’s, with the end goal of selling more pizzas and generating more revenue. It is a strategic investment. Further, the cost of giving away a pizza is not equal to the market value of that pizza. I apologize if that was not made clear above.

3. Some seem to think my analysis suggests I don’t appreciate a business’s duty to shareholders to maximize value. That is not in dispute. But (given the parameters I set up), using Schnatter’s figures, the costs his company will incur due to Obamacare are not equal to the pie increases he mentions. Those pie increases would more than make up for damage done to the company’s net income through increases to operational expenses. Of course, if he thinks it won’t harm the bottom line, he is absolutely allowed to increase prices further. Given inflation and expansion, his other expenses will obviously increase in the following years too. But attributing all price increases to Obamacare would be disingenuous.

5. Finally, I get the impression that Schnatter is attempting to communicate that there is no such thing as a free lunch, which is true. In the comments, many have mentioned that other companies will most likely need to increase prices in response to Obamacare. That is also true. The question that can’t be answered right now is: How will Schnatter’s open communication and politicization of price increases ultimately impact his company? Variables to consider: boycotts, counter-boycotts and shareholder perceptions of all the above. Previous case study: Chik-Fil-A.

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I do not. There are many things I don’t take into account, delivery vs. pick-up, non-pizza menu items, the fact that MANY orders are not specialty pizzas, but in fact cheaper single topping pizzas (those single topping pizzas, given my parameters, would skew Schnatter’s proposed pie increase even further away from the ratio of the operational expense increase). The calculation is very simple. I work only with those figures Schnatter has provided in public statements.

Fair enough. I’m guessing that the metric that Schnatter used was average sale price — it’s the most important metric in the pizza business. Pizza owners know almost exactly how many customers they will lose when the sale price increases, so he didn’t just increase the average sale price by 0.85 percent. He compensated for the loss of customers. And then he applied the new average sale price across the ratio of pies to side orders. At least that is what I think he did.

I will keep this simple. I will never again have a Papa Johns pizza. I do not want to hear third-rate MBAs talking about supply chain problems, or this ego-driven CEO seeking publicity on the backs of hard-working ordinary people. This guy is a dork, an uncaring, smirking dork, and if he should ever try to marry into my family, I will load the shotgun. This smug asshole may have money, but he no longer has any respect.

Is the author of this article aware that on the site he references a net balance of 260 members (that is, an overweight between those who agree and those who disagree) recently agreed that “Violence is the only answer” to “inequality”?

I guess a news source will refer to sources that share their sympathies.

Here we go again. Another GREEDY CEO (of Papa John’s Pizza) who prefer to treat his employees as slaves (not paid living wages) while reaping from the sweat of their labor to build mansions. What a Republican?

This same person would like to be considered a human being with conscience and you wonder why your ideology is rejected by most American Citizens? Mr. Schnatter, do you realize that employees are HUMAN CAPITAL? And the better you treat them. the more money you make?

Health care keeps them healthy to work for you so that you can maintain the American dream and lavish lifestyle you portray. You would not have built that mansion in Kentucky without your devoted employees delivering pizza all-year-round under difficult weather conditions at low wages, and you are not compassionate enough to provide them with basic health insurance?

Sell a portion of your mansion, if necessary to provide basic health care for your employees.

Personally, now that I’m reading about how jerks like this Papa guy and Applebees and who knows how many other restaurants don’t offer their employees free healthcare – you know, the people who are HANDLING YOUR FOOD – I have decided I no longer need to eat out in restaurants. I can make the same crappy food at home and it won’t cost me anything. Sorry, but I don’t want sick employees making ME sick, and these companies make BILLIONS in revenue, so there’s no reason they can’t take steps to make sure their employees are healthy. They simply don’t care enough about their health, or even enough to offer them a decent living wage.

Your analysis of the ObamaCare cost is remarkable. You must have taken some amazing accounting courses. According to your article–’So how much would prices go up, under these 50/50 conditions, if they were to fairly reflect the increased cost of doing business onset by Obamacare? Roughly 3.4 to 4.6 cents a pie.’ “Fairly reflect(ed)”? Really? Is that an exact number that you came up with or an estimate? I would rather boycott you.